Selling Your US Property as a Canadian in 2025–2026: FIRPTA, Taxes, and How to Recover Your Withholding

FIRPTA — the Foreign Investment in Real Property Tax Act — is a 1980 US federal law designed to ensure the US collects tax on capital gains earned by foreign persons selling US real property. The mechanism is a withholding obligation on the buyer: when you (a Canadian) sell US real estate to anyone, the buyer or their settlement agent is required by law to withhold 15% of the gross sale price and remit it to the IRS. This withholding is collected at closing — it is deducted from your sale proceeds before you receive anything. The withheld amount is not a final tax; it is a deposit against your estimated US capital gains tax liability. You file a US non-resident tax return (Form 1040-NR) after the year-end to calculate your actual tax owing, and if the withholding exceeds your actual tax (which it often does, because FIRPTA is calculated on gross proceeds not gains), the IRS refunds the difference — typically 6–18 months after filing.

Yes — there are two main routes. First, the buyer primary residence exception: if the buyer (not you, the seller) intends to use the property as their primary residence, the withholding rate is reduced to 0% for sales at or below $300,000, or 10% for sales between $300,001 and $1,000,000. The buyer must sign an affidavit confirming this intended use. For sales above $1,000,000, no exception applies regardless of buyer intent. Second, the Withholding Certificate (Form 8288-B): you can apply to the IRS before or at closing for a withholding certificate that establishes your actual expected tax liability and reduces the withholding accordingly. If your expected tax is $20,000 on a $400,000 sale (5% of gross, vs the default 15%), you apply for a withholding certificate setting the withholding at $20,000. The IRS typically takes 3–6 months to process Form 8288-B — you must apply well in advance of your anticipated closing date. If the closing proceeds before the certificate is issued, the full 15% applies at closing and you file for refund afterward. For planned sales, applying for Form 8288-B is almost always worthwhile.

You report the sale on your Canadian T1 in two places. First, Schedule 3 (Capital Gains or Losses): report the adjusted cost base (in Canadian dollars at the exchange rate on your purchase date), the sale proceeds (in Canadian dollars at the exchange rate on the sale date), and the resulting capital gain. The 50% inclusion rate applies to the net gain, which is added to your taxable income for the year. Second, Form T2209 (Federal Foreign Tax Credits): claim the US federal tax you actually paid as a foreign tax credit. The credit reduces your Canadian federal tax by the verified US taxes paid, preventing double taxation. Important: only verifiable taxes actually paid count for the FTC — the FIRPTA withholding is not the tax paid; the actual tax calculated on your 1040-NR is. If the IRS issues a refund of excess withholding, your actual US tax is the net amount (withholding minus refund). You may need to file the Canadian return before you receive your US refund — report it on the basis of your expected actual tax, and amend if the final numbers differ. Provincial tax also applies in Canada — include the provincial FTC claim on your provincial return.

Florida has no state income tax — and therefore no state capital gains tax. When you sell a Florida property as a Canadian, your US tax obligation is federal only. Compare this to a California property sale: California levies up to 13.3% state income tax on capital gains, with no long-term capital gains rate preference — all gains are taxed as ordinary income at the full state rate. A Canadian selling a $400,000 California property with a $180,000 gain would owe: $27,000 US federal CGT (at 15% LT rate) + approximately $23,940 California state tax (at 13.3%) = $50,940 total US tax. The same sale in Florida: $27,000 federal only. The Florida advantage — $23,940 — is entirely attributable to the state tax absence. This is one reason Florida has been a long-standing favourite for Canadian snowbird property: lower purchase and maintenance costs than California, and a dramatically more favourable exit tax position.

Yes — you must have a US Individual Taxpayer Identification Number (ITIN) to file a Form 1040-NR and claim a FIRPTA refund. An ITIN is a tax processing number issued by the IRS to individuals who are not eligible for a Social Security Number (SSN) — which includes Canadian citizens without US work authorization. If you already have an ITIN from prior US tax filings (rental income, previous sales), use it. If you don't have one, you must apply for an ITIN using Form W-7, which requires original or certified copies of identity documents (passport) and proof of your foreign status. Form W-7 can be submitted simultaneously with your 1040-NR at tax time, or at a US embassy or consulate that serves as an IRS Taxpayer Assistance Center. Processing takes 6–11 weeks. The FIRPTA withholding clock starts on your closing date — the refund timeline assumes you file promptly and have your ITIN in order. A US cross-border accountant can handle the ITIN application and 1040-NR filing simultaneously.

Here is the step-by-step timeline for your scenario. Step 1 (Before listing): Consider whether a Withholding Certificate (Form 8288-B) makes sense. Your expected gain is $180,000 USD; expected US federal tax at 15% LT rate is $27,000 (6.75% of gross). The default FIRPTA withholding would be $60,000 (15% of gross). Applying for Form 8288-B could reduce withholding to $27,000 — saving $33,000 in cash flow at closing. Apply 3–6 months before anticipated closing. Step 2 (Closing day): Settle the property. Buyer's agent withholds either $60,000 (default) or the certificate amount if approved. Receive net proceeds. Step 3 (April following tax year): File US Form 1040-NR reporting the gain, actual tax ($27,000), and claiming the $33,000 excess withholding as a refund. Include your ITIN. Step 4 (6–18 months later): Receive IRS refund of $33,000. Step 5 (Same Canadian tax year as sale): File Canadian T1 reporting the Schedule 3 capital gain in CAD, claim T2209 FTC for the US federal tax actually paid ($27,000 USD = approximately $37,000 CAD at 0.73 rate). Net Canadian tax owing after FTC: approximately $16,000 CAD. Total tax paid: US $27,000 + CAD $16,000 (approximately USD $11,700 equivalent). Total taxes on a $180,000 USD gain = approximately USD $38,700, or an effective combined rate of 21.5%. This compares favorably to many Canadian investors' full marginal rate on a domestic gain.

If you are within the statute of limitations (generally 3 years from the filing due date of the 1040-NR for the year of sale), you can still file a late 1040-NR and claim the FIRPTA refund. The IRS applies the 3-year rule for refund claims — if the 1040-NR was due April 15, 2024 (for a 2023 sale), you have until April 15, 2027 to file and claim a refund. After 3 years, the refund is forfeited and cannot be recovered regardless of the amount withheld. In addition to the refund issue: if you earned rental income from the US property in prior years and did not file US non-resident returns, you have unfiled 1040-NR obligations — these may have penalties. The IRS ITIN and 1040-NR compliance requirements for Canadian property owners are frequently handled together by US/Canada cross-border tax specialists who file multiple years simultaneously. If you are in this situation, act within the 3-year window and consult a professional immediately.

The tax analysis above gives you the framework, but the decision depends on factors beyond tax: your personal financial situation, USD/CAD exchange rate expectations, the US property market in your specific location, and your use plans for the proceeds. From a pure tax standpoint, the US federal long-term capital gains rate at 15% (for most middle-to-upper income Canadians) is favourable — lower than Canada's top marginal rates and fixed at the federal level for the foreseeable future. Florida's 0% state rate is a structural advantage that makes Florida property specifically tax-efficient to sell. The CAD/USD exchange rate matters significantly: if you bought at CAD/USD 0.75 and are selling at CAD/USD 0.73, the exchange rate is slightly unfavourable versus your purchase rate — a stronger CAD means fewer Canadian dollars from the same USD proceeds. If you believe CAD will weaken further (USD strengthens), holding and selling later produces more CAD. These are judgment calls. The tax mechanics are clear; the market and currency timing are not.